Monthly vs. Annual Billing?

[Kiopa_Matt]

What are your thoughts on monthly vs. annual pricing? Say you charge a setup fee for a digital product / service, but also want recurring out of it. What's your baseline to determine whether it should be monthly or annual billing?

I could see how annual billing would be quite beneficial, especially in B2B space. Say $595/year versus $49.95/month. With the monthly charge, it seems like more of a drag, and just another bloody bill you need to add into your budget. Whereas with the annual billing, you only need to worry about it once a year, so that's not too bad. Not to mention, it subconsciously lets people know you're in this for the long-haul, and not a company that's going to close shop in a few months.

Discuss.

 

[cardine]

I go off of a couple things.

The first thing is what I expect the retention rate to be. If I think it'll be low I'll try to incentivize people to do yearly for a discount.

The other thing is what the price is. Going from $9.95/mo to $79.95/year is something a lot of people are comfortable with. However, I don't think nearly as many people are comfortable with going from $49.95/mo to $399.95/year, and even less are comfortable going from $199.95/mo to $1499.95/year.

I'm sure there are more scientific ways to do it, but those are generally the two factors I look at the most.

 

[Drastic]

I prefer monthly, but try to offer 12 months for the price of 10 if they want.

Problem with 12 month is opposite of what you think, rather than assume you'll be deliverying what you start out with, many worry the value might not be there for 12 consecutive months.

 

[JoseArmando]

Risking of sounding like a broken record but chances are your first few price points/pricing models you come up won't be optimal, this means the only way is to split test as many as you can and find that sweet spot with low refunds and highest ROI.

 

[Robert M Gouge]

Risking of sounding like a broken record but chances are your first few price points/pricing models you come up won't be optimal, this means the only way is to split test as many as you can and find that sweet spot with low refunds and highest ROI.

Agree with this.

I suppose it would depend on what you're offering. I can think of a few services/scenario were yearly billing would likely win out over monthly if the customer had to choose one.

But, why not simply offer both?

Monthly at a base rate and then yearly with a discount.

 

[kyaizen]

Split testing price points is a bitch, but it's possibly the best test that you'll ever do, well ahead of testing headlines and copy and traffic sources

 

[secretagentdad]

You're asking the wrong question.

Various demographics correlate differently.

Certain groups will always prefer yearly, others monthly, others will only buy one offs.

How you define those groups is the key.

In my mind its all about setting up ways that you can get away with price discrimination with out pissing off your user base.
Then, testing the ror on your isolated groups.

 

[swiftmoney]

I personally think that you should be offering both annual and monthly packages (yearly with a discount is a must).
The only question should be price points, which as stated above by other members, the only thing you can do is split test your various price points.

 

[Kiopa_Matt]

How do you split test prices though? Almost nobody buys online these days without first searching "product_name coupon code". Not to mention you'd be found out almost instantly. Then the next time you Google your product's name, you find loads of forum and blog posts trashing you for being an untrustworthy scammer and randomly increasing prices on people.

I guess you could white label the product, but that doesn't work, because then you're missing the reviews, and many people won't purchase without reviews. And they definitely won't pay top dollar without them.

Various demographics correlate differently.

Yeah, true enough. Original OP actually totally different, but I quickly changed my mind, decided didn't want to say too much, and quickly rewrote it.

 

[secretagentdad]

How do you split test prices though? Almost nobody buys online these days without first searching "product_name coupon code". Not to mention you'd be found out almost instantly. Then the next time you Google your product's name, you find loads of forum and blog posts trashing you for being an untrustworthy scammer and randomly increasing prices on people.

I guess you could white label the product, but that doesn't work, because then you're missing the reviews, and many people won't purchase without reviews. And they definitely won't pay top dollar without them.



Yeah, true enough. Original OP actually totally different, but I quickly changed my mind, decided didn't want to say too much, and quickly rewrote it.

Couldnt agree more.

Figuring out how to do it with out pissing people off is the magic trick.